THE BLOG

Are We on the Right Track to Supporting UK Business Growth?

23/10/2014 11:55 BST | Updated 22/12/2014 10:59 GMT

If you're familiar with the UK business market, you will be well acquainted with the fact that 99.9% of all UK companies are SMEs*. Needless to say, this over-simplifies the landscape and the differences between companies that are classed as micro, small or medium in size. From independent retailers and tech start-ups to small food chains and larger hospitality companies, their growth ambitions and challenges vary wildly.

For this reason, it is becoming a lot less meaningful to look at SMEs as a single category and to try support them with such a broad-brush approach. A deeper understanding of the exact size, nature, qualms and needs of SMEs reveals a far more accurate picture of the UK economy and its growth curve, as well as highlighting how we can help small businesses to achieve their full growth potential.

We recently undertook a brand new study to reveal just this: what is the nature of UK businesses? How is the typical size of a UK company changing over time? What are the lasting effects of the recession on UK companies' desires and abilities to grow? And is the Government - with its renewed focus on 'Getting Britain growing again', 'Exporting for growth' and 'Funding for growth' - actually on the right track?

The results were fascinating; the UK has added 1.4 million micro firms (0-9 employees) to the business landscape since 2000 (up 43%) and - smaller still - the number of zero-employee firms (working proprietors) has increased by 21.4 per cent since the recession, making this the fastest growing business size category of all those we analysed.

Further insight confirmed that this doesn't simply demonstrate good old-fashioned entrepreneurialism at work; the number of firms with 1-4 employees has fallen by around 48,000 since the recession. This implies that the strong growth in the micro size band has been driven primarily by the rapid growth in self-employment as a result of the financial crisis.

Why does this matter? According to our analysis, turnover per worker actually increases with company size, climbing steadily to a peak of on average £186,100 amongst firms with 250-499 employees. This suggests that supporting the growth of smaller firms should enable expansion and investment, which would markedly improve their contribution to the UK economy. While it's true that not all companies have the desire to grow, we need to maximise the growth potential that does exist.

It is also important to remember that the UK is reliant on a relatively small number of large businesses for the majority of private sector turnover and employment. When comparing the gross value-added contribution of businesses in the UK and comparable European markets, the UK's large enterprises account for a significantly greater proportion than is seen on the continent.

If the UK has become a nation of so-called "micropreneurs" then it is even more worrying to learn that the proportion of high-growth businesses fell by more than 20 per cent since 2005. All is not lost however: while medium-sized businesses (50-249 employees) are more likely to have been reclassified as small (0-49 employees) than they are to have become large (250+ employees) since 2008, the latest data suggests that the proportion of high-growth companies is set to recover.

That said, even by 2017, the only region to have eclipsed its 2005-proportion of high-growth businesses is expected to be London. And so, the pressure remains on the Government to do more to trigger high growth across the country. Its focus certainly appears to be on the right track - including improving access to finance and reducing red tape - but the question remains whether this is getting through to the right people and making a big enough difference.

Ambition is there for the taking: we spoke to small business owners with a desire to grow their company, and two thirds (64%) described themselves as ambitious. But around three quarters (73%) said the Government must make it easier for SMEs to access the right information and support for growth. Addressing this will be vital in sustaining the growth of the UK economy.

*(Source: The Federation of Small Businesses).